Monday, January 09, 2012

Distributism 101: The two economic fallacies

Before all the Occupy protesters freeze and lose consciousness, I'd like to point out to them (and anyone else willing to listen) what it is that they should have been protesting about. Instead of taking to the streets and acting like a bunch of spoiled children, they could have been making intelligent criticisms of our economic systems that actually, like, matter.

In this first in a series of posts on the economic theory of Distributism, I want to explain what it is and how it differs from the two extremes in economics: libertarian capitalism and liberal socialism.

Distributism is an economic and social theory that has been gaining a lot of attention for several reasons, I think. The first is a sort of revival in interest in the thought of G. K. Chesterton is recent years. The second is that many of the ideas articulated by Distributists like Chesterton, Hillaire Belloc, E. F. Schumacher--as well as the more contemporary Wendell Berry, seem to be underly the thinking of Philip Blond and the Red Tory movement in England.

Distributism is the idea that capital should be spread widely in society--not concentrated in the hands of government and not concentrated in the hands of big business.

The problem with the Occupy protesters is not that they are wrong about a small number of capitalists having too much power: they're problem is that they seem to think that the solution to the problem is a more powerful government. And the problem with the critics of the Occupy movement is, first, that they think there is no economic problem; and, second, that they think the only right kind of economy and society is a libertarian capitalist one.

Our economic discussion, in other words, is cast in a Scylla and Charibdis form: either you are a capitalist and right (or wrong) or you are a socialist and you are wrong (or right). Well, to put it simply: no, not necessarily.

The best simple introduction to distributist economic ideas is Hillaire Belloc's Economics for Helen, a book out of print for many years, but now back in print thanks to IHS Press.

Belloc makes a distinction that could serve as the first lesson for anyone interested in knowing more about Distributism, a distinction that makes sense of so much of the nonsense in the debate over the Occupy movement and its critics: There is economics considered theoretically and economics considered practically--theoretical economics, if you will, and applied economics.

On the one hand, theoretical economics focuses on the way economics laws work. On the other hand, applied economics tell us what the economic state of affairs ought to be. The main problem in economic debates between so-called conservatives (who are really liberals [in the classical sense] on economics) is that they emphasize the theoretical aspect of economics in disregard of the applied, and the problem of the so-called liberals (many of whom are really socialists) emphasize applied economics in disregard of the theoretical.

In regard to the emphasis on theoretical economics, the law of supply and demand and the law of diminishing returns really are all they're cracked up to be. The Law of Comparative Advantage compares very advantageously, and Say's Law does just what Say said. The market, in other words, works in the abstract and in the aggregate. If it were to operate in total freedom without any interference it would produce the most efficient result--in the abstract and in the aggregate.

The trouble is that all the equations and analyses of the increasing mathematical discipline of economics only tells us about those things that are quantifiable. The gross national product may be higher than it's ever been, but that doesn't mean people are happier than they ever were.

To say, as the libertarian capitalists say, that we should just get out of the way and let the market work, is a value judgment, and one that assumes that the kind of abstract, theoretical efficiency that the market produces is the best state of affairs. And often this value judgment of the best state of affairs is spoken of as if it were a judgment that was part of theoretical aspect of economics, when, in fact, it's not.

Economics (in its theoretical sense--applied economics is really a part of politics) is like mathematics: it can tell us how to get to the right amount of whatever it is we want: it cannot tell us what the right amount is. Economics, like math, is completely theoretical in that respect. Economics cannot tell us what is the best allocation of resources: it can only tell us what we should do to get the allocation of resources we already know is, in fact, the best.

The mistake that assumes that the unfettered market automatically produces the best outcome is the typical mistake of capitalists, and it results from the overemphasis on the theoretical aspect of economics.

The second mistake--that made by socialists--is the mistake of thinking that we can merely transfer more power to well-intentioned big government and trust it to do the right thing regardless of the actual quantifiable damage it can do.

The means to success, thinks this school of thought, is to get together, pass policies with nice sounding names (legislation with "children" in the title always works), and simply command that these good things happen. Unfortunately, because of their disregard for the theoretical aspect of economics, there are usually unintended consequences of these actions. Because of the ignorance of laws of theoretical economics, these actions often result in the mitigation of the sought-for good result or the accentuation of some economic evil that was unforeseen.

Great Society programs, intended to help the poor, instead helped foster and sustain an increasingly permanent underclass through a set of bad economic incentives. Minimum wage laws, intended to raise the wages of workers in low paying jobs, often simply resulted in higher unemployment for those seeking entry-level jobs.

The first mistake is utilitarian, since it sees mere quantifiable results as the measure of economic success, and sees quantifiable results as the test of economic success. The second mistake is romantic, and sees good intentions as the test of economic success.

61 comments:

KyCobb
said...

Martin,

I'll ignore your unsupported claim about the minimum wage to focus on a substantial question. We know social democracies with generous benefits work well in countries such as Germany and Sweden. We also know that unchecked, wealth tends to concentrate in the hands of the few with the leverage to accumulate it. Exactly how do you propose to maintain a reasonable level of income distribution without government intervention?

> Exactly how do you propose to maintain a reasonable level of income distribution without government intervention?

I think this is where the philosophical divide begins.

Karl Marx was outraged that the rich got richer and the poor got poorer, but he also made it clear that, in his mind, getting "poorer" meant getting poorer relative to the rich.

In other words, it wasn't poverty in absolute terms that got his spun up. It didn't matter to Marx if the poor were in fact better off today than they were yesterday in terms of more money, better food, better choices, etc. What we could characterize as "real" wealth.

What did matter to Marx was the relative balance of wealth.

So to return to your earlier statement, KyCobb, what constitutes a "reasonable level of income distribution" depends greatly on whether you consider an income imbalance, by itself, to be a necessarily bad thing.

It is agreed that, if the poor are desperately poor, starving, ill-nourished, high infant mortality rate, etc., and there are people in the same country who live high on the hog, it's an ugly situation.

But I'm not talking about that. One could argue that those situations are not bad because of the wealth distribution, but because there just isn't enough wealth.

I'm talking about, say, the U.S. -- where the poorest people seem to have plenty of food, plenty of stuff, and get their poor health treated one way or the other.

If the economy grows and the poorest people in society are materially better off than they were a generation ago, even if the rich are even more rich than before, is that such a bad thing?

'It is agreed that, if the poor are desperately poor, starving, ill-nourished,...'

http://www.ers.usda.gov/Briefing/FoodSecurity/

I quote:

"In 2008, 85 percent of U.S. households were food secure throughout the entire year, and 14.6 percent of households were food insecure at least some time during that year, up from 11.1 percent in 2007. This is the highest recorded prevalence rate of food insecurity since 1995 when the first national food security survey was conducted."

"...high infant mortality rate,..."

Inthe most recent OECD statistics, the US ranks 32nd in infant mortality rate (6 deaths per 1,000 live births), just above Chile.

Number 1 to 5:

IcelandLuxembourgJapanFinlandSweden

France and Germany are tied at 16 and 17 with 3.8 deaths per 1,000.

To paraphrase Stephen Colbert: Reality has a well-known socialist bias.

> Inthe most recent OECD statistics, the US ranks 32nd in infant mortality rate (6 deaths per 1,000 live births), just above Chile.

It's off-topic. But the U.S. is always going to rate high in infant mortality so long as we continue trying to save babies (e.g., premies) which are, in other countries, allowed to die, or are at the very least counted differently.

I'm shocked, shocked, that you would take a questionable statistic and run with it like you're Jim Brown scoring a touchdown.

"It is agreed that, if the poor are desperately poor, starving, ill-nourished, high infant mortality rate, etc., and there are people in the same country who live high on the hog, it's an ugly situation."

So as long as the US is one step above Haiti you are good? Here in the US we have millions of unemployed, which seriously degrades people's health and quality of life, and a big reason for it is that for the last couple of decades all of the benefits of economic growth have gone to a tiny sliver at the top while the incomes of the vast majority have stagnated. In a consumer economy such as we have, that's a big problem, because a few thousand billionaires and multi-millionaires can't consume as much stuff as hundreds of millions of middle class people. Strong economic growth requires getting money into the hands of people who will spend it.

Sorry? You claimed that poverty was only a problem in other countries with high infant mortality. The US has high infant mortality, so this is eminently relevant.

'But the U.S. is always going to rate high in infant mortality so long as we continue trying to save babies (e.g., premies) which are, in other countries, allowed to die, or are at the very least counted differently.'

Are you honestly telling me you think that in Sweden or Japan they just let babies die after birth and don't try to save them? Do you have any data or study to back that rather outrageous claim up (note that I cited an official report for all of my stats)???

The facts, Lee. Just the facts please.

'I'm shocked, shocked, that you would take a questionable statistic and run with it like you're Jim Brown scoring a touchdown.'

Is it a questionable statistic? Well, what is your statistic to back up your claim? Where is it?

> Sorry? You claimed that poverty was only a problem in other countries with high infant mortality.

You have an exceptional capacity to read things I didn't write.

> The US has high infant mortality, so this is eminently relevant.

O Mighty Google, answer me this:

> "u.s. high infant mortality rate"

The very first link that comes up is from Slate, hardly a bastion of heartless right-wing reptiles. Article named "Baby Gap," author Darshak Sanghavi, quote:

> "Comparing infant mortality rates between countries is fraught with uncertainty—after all, it's hard to argue that every country's figures are reliable."

Uncertainty, meet Singring. Continuing...

> "Defined as death before one year of age, infant mortality frequently gets framed in the United States as a problem of insufficient health-care funding. In December, for example, a New York Times column blamed it on the lack of a single-payer health insurer. However, a closer look reveals the counterintuitive possibility that high infant mortality in the United States might be the unintended side effect of increased spending on medical care."

The author goes on to explain that the problem of infant mortality in developed countries (like the U.S.) is more closely related to premature births.

The second link produced by Mighty Google is a Wikipedia page...

> "However, the method of calculating IMR often varies widely between countries, and is based on how they define a live birth and how many premature infants are born in the country."

In other words, if a baby is born two months premature, some countries might count his death as infant mortality, while others might count it as something else.

Continuing on...

> "Many countries, including the United States, Sweden or Germany, count an infant exhibiting any sign of life as alive, no matter the month of gestation or the size, but according to United States Centers for Disease Control (CDC) researchers, some other countries differ in these practices. All of the countries named adopted the WHO definitions in the late 1980s or early 1990s, which are used throughout the European Union. However, in 2009, the US CDC issued a report that stated that the American rates of infant mortality were affected by the United States' high rates of premature babies compared to European countries. It also outlined the differences in reporting requirements between the United States and Europe, noting that France, the Czech Republic, Ireland, the Netherlands, and Poland do not report all live births of babies under 500 g and/or 22 weeks of gestation."

More...

> "Another well-documented example also illustrates this problem. Until the 1990s, Russia and the Soviet Union did not count, as a live birth or as an infant death, extremely premature infants (less than 1,000 g, less than 28 weeks gestational age, or less than 35 cm in length) that were born alive (breathed, had a heartbeat, or exhibited voluntary muscle movement) but failed to survive for at least seven days. Although such extremely premature infants typically accounted for only about 0.005% of all live-born children, their exclusion from both the numerator and the denominator in the reported IMR led to an estimated 22%-25% lower reported IMR."

So presenting U.S. infant mortality rates as a simple scalar value to be used in direct comparison with other countries is simplistic and deceptive. But if left unchallenged, no doubt helpful to your case.

Well, Singring, I never claimed that Wikipedia was the final authority. All I needed to do was to point out that your simplistic statistic doesn't really explain much, or justify the zeal with which you brandish it -- as such comparisons are "fraught with uncertainty."

1. Everyone would be equally well-off, but humanity as a whole would be living in poverty, the sort of poverty suffered by most people throughout most of human history. Meager food. Rampant disease. High infant mortality, of the sort that limited human population before about 1800. Etc.

2. There is inequality. The rich are far better off than the poor. But the poor are much better off than in scenario 1. Sufficient food -- so much, in fact, that obesity is one of their biggest health problems. Lower risk to communicable disease. Better health care. Lower IMR. The poor are still considered poor, but only relative to the rich, in this scenario: they are far better off than the poor in scenario 1.

Please treat this as a hypothetical. Just want to know how you'd choose, if these were your only two choices. This is a philosophical question, not argument for or against one way or the other.

Singring...The Swedes are still having babies? The Japanese sure are not having many, but, unlike the Swedes, they refuse to import immigrants for the shortfall. Speaking of Swedes, how goes things in Malmostan?

LOL! I don't need Fox News to tell me that! I can drive you to a four miles away from my house. A very run-down neighborhood. Row after row of townhouses that have seen better days. The majority of the tenants are receiving Section 8 housing subsidies. You'll be riding in my newly-acquired 2004 Toyota Avalon. It's a very nice car, and I'm quite happy with it. But there are many cars you'll see in this run-down neighborhood that are much newer and nicer than mine.

'Singring...The Swedes are still having babies? The Japanese sure are not having many, but, unlike the Swedes, they refuse to import immigrants for the shortfall.'

What does this have to do with infant mortality rates, pray tell me?

Lee:

'If you were confronted with the following choices for society:'

Ah yes, ye olde false dichotomy. Oh - and when did you suddenly become such a utilitarian, Lee?

Personally, I would go for scenario 3:

There is inequality. There is an inequal distribution of wealth where some people hold up to several times as much wealth and income as others, but in general income and wealth are distributed more equally so that the 'poorest' in the nation still earn enough money to live comfortably (i.e. with sufficient free health insurance, food and equal education opportunities for all). Instead of the top 1 % owning 50 % or more of the nartion's wealth, in my scenario it would be more like the top 25 % owning 50 % of the nation's wealth. This way, the 'poor' are much better off than in scenarios 1 or 2 and the rich are still quite well off. Everyone in between is doing just fine also.

'LOL! I don't need Fox News to tell me that! I can drive you to a four miles away from my house. A very run-down neighborhood. Row after row of townhouses that have seen better days. The majority of the tenants are receiving Section 8 housing subsidies.'

Anectodes.

Superb evidence, I must say! You are convincing me ever more with this onslaught of rational arguments.

"In regard to the emphasis on theoretical economics, the law of supply and demand and the law of diminishing returns really are all they're cracked up to be."

I don't buy this "economic law" stuff. A scientific law is generally an articulation of a power inherent in some irrational object. The law of gravity is an articulation of some force inherent in an object. Because being a material thing means attraction to another thing, that law is true. But material things do not choose to be attracted to one another.

Human beings do choose how to behave. Human choices are embedded in their biology, which is relatively constant, but also in culture, religion, and the particular forces of history. As E.F. Schumaker shows, those who have a Buddhist approach to material possessions will choose very differently than those who have a culturally materialist perspective: the former will try to minimize their consumption, while the latter try to maximize it. Further, the various economic systems work in fundamentally different way: an agrarian society based on bartering will work differently than a post-industrial society driven by an unrestricted finance sector.

Any economic law abstracted from culture and particular legal and economic institutions that drive a society is a fiction. A theory that does not differentiate between the client-patron property system of ancient Rome and the state-controlled market system in China is not worth much time.

Further, any economic system which is detached from empirical research and wishes to proceed by imagination (as Austrian economics tends to do) is fundamentally defective. Richard Posner argued that countries that employ more public workers as a percent of their workforce are less efficient than countries that have a lower percentage of public employees. Had he left it there, this would have been an expression of how he imagined things to be. But to his credit, he performed the empirical research to see if this was actually so in reality. His comparison of the percentage of public employees to productivity in various countries showed no statistical correlation, and he revised his views. Similarly, many people seem to think that cutting taxes increases productivity. Yet the raw data says the exact opposite: countries with higher taxes tend to be more productive than countries with lower taxes. At best, supporters of this view can point to some econometric models that show a very mild correlation.

> Superb evidence, I must say! You are convincing me ever more with this onslaught of rational arguments.

I don't think evidence of any sort is likely to sway you.

The Left tends to see the existence of wealth as a fact of nature and to a leftist, the problem is to distribute wealth fairly (though the word "fair" is not terribly objective).

I can't speak for the entire Right, but my own perspective is that poverty is the natural state of mankind. It is not poverty that needs explaining, but the existence of wealth. There is a certain framework for society that grew in Western Europe over the past several hundred years, and I believe this framework made possible such wealth as we have enjoyed for the past couple of hundred years.

The hard part is keeping the liberals from tearing down that framework because it does not meet their cosmic specifications.

I can point out all I want that the poor today are better off materially than all but the richest of the rich were throughout most of history.

But that will still never satisfy the demand for cosmic fairness. It's easy to indict the status quo, much harder to indict something that is still a vision waiting to be born.

And when it is born, things tend to go so horribly wrong that its assorted parents can't wait to disown it.

If I only had those two choices, only an idiot would pick 1 over 2. But those aren't the only two choices we have. Why on earth would I choose to have a disappearing middle class so that 1% of the population can continue to grow wealthier when they are already vastly wealthier than anyone has ever been in history?

Well, then we may not be as far apart philosophically as I feared. But I would submit that a lot of very intelligent people would probably pick 2. To such people, inequality is to be avoided at all costs.

> But those aren't the only two choices we have.

There is one third choice that I know of, and that's the situation for most of history before about 1800 -- widespread, abject poverty, and still there was vast inequality.

To me, it appears that the strong will always subjugate. It is speculative to suggest that we can eliminate the sorts of equalities that so infuriate the Left.

My worry, as always, is that the desire to seek more equality will come at the cost of losing the wealth that the Left is so eager to redistribute.

> Why on earth would I choose to have a disappearing middle class so that 1% of the population can continue to grow wealthier when they are already vastly wealthier than anyone has ever been in history?

Perhaps a good first step, and one that we might both agree is good, would be to dispose of crony capitalism.

Even in the past few centuries in America, there have been different forms of economic organization: mercantilism, embedded liberalism, neo-liberalism, etc. The economic forms that have shown up over time show an enormous variety in both their structure and relative successes. The idea that we have basically two choices is a false one. Of course, this does not mean that European-style democratic socialism is the answer.

'Singring...Thanks for reminding me how grateful I am that my ancestors left Germany a long time ago.'

And thanks to you too, anonymous, for providing us with rational isnight and coherent arguments rather than an ad hominem (and a rather cliched one at that).

Lee:

'There is one third choice that I know of, and that's the situation for most of history before about 1800 -- widespread, abject poverty, and still there was vast inequality.'

So you just choose to ignore the period after WW2 where wealth was distributed far more equally in the US? You ignore the socilist contries in Europe whose economy is growing as least as well as that of the US despite more equal distribution of wealth? You actively choose ignorance over reality? And then you tell me that I'm the one why will never be swayed by any evidence?

'Perhaps a good first step, and one that we might both agree is good, would be to dispose of crony capitalism.'

We can 100%, absolutely and totally agree on that point. But I'd like you to tell me what crony capitalism has to do with socilistic ideas regarding the structuring of an economy? In Europe, we have much less (*though still far too much) crony capitalism than in the US simply because of the way we finance our elections. Campaign finance laws have nothing to do with fiscal policy, so there's a first indication that crony capitalism can be attacked regardless of teh fiscal framework.

"Perhaps a good first step, and one that we might both agree is good, would be to dispose of crony capitalism."

Government corruption is a hindrance to a healthy economy. It's unfortunate that the Supreme Court has opened the gates for the flow of unlimited corporate money to support politicians, though I have to admit it is amusingly ironic to watch a billionaire spend millions of dollars launching a left-wing attack on Romney for being a heartless, cutthroat capitalist. Who would have thought that Newt would attack Romney from left of, not just Romney, but President Obama.

Singring....How's that EU aka United States of Europe thing working out for the volks? Just remember, if you really want to be the United States you'll have to finally pay for your own military, because we're just plain tuckered out. Or you could call the Swedes.

> Government corruption is a hindrance to a healthy economy. It's unfortunate that the Supreme Court has opened the gates for the flow of unlimited corporate money to support politicians...

And likewise, it's unfortunate that the U.S. government has opened the gates for the unlimited flow of taxpayers money to selected, favored corporations, including Wall Street and the failed U.S. automakers.

But I seem to recall you were in favor of that last one.

Still, we seem to have some points of agreement.

The biggest myth in modern American economics is that big business is pro-free-enterprise. They are, of course, but only when it comes to other enterprises besides their own. When it comes to their own enterprises, they are all in favor of an unfree market, as long as it helps them.

Unfortunately, the carte blanche power the federal government has for regulating industry feeds crony capitalism, because the regulators become the regulatees. That's where the corrupting power of money comes in. Somehow, the regulations always get written that favor certain existing corporations, and leave smaller, potential competitors facing an uphill struggle.

Government has a proper role in the economy: to be the enforcer of criminal and contract law, to be the enforcer against criminal fraud, to guard the general public against unfavorable third-party effects... in short, the analogy is to the guys who wear the striped shirts in the NFL. They are there to assist the game, not hamper it, by enforcing the rules and not taking sides.

But our government takes sides. GM lost, but then again, GM won because the government saved them. The market spoke, but the government took sides.

Fannie Mae, Freddie Mac, and scads of Wall Street investors lost, but then again, they won because the taxpayers were tapped.

That's what I'm talking about when I talk about crony capitalism. That, and the vast array of laws, regulations, and taxes designed to empower existing enterprise and protect them from potential competitors.

> ...though I have to admit it is amusingly ironic to watch a billionaire spend millions of dollars launching a left-wing attack on Romney for being a heartless, cutthroat capitalist.

Agreed. It's a disgusting but amusing spectacle.

> Who would have thought that Newt would attack Romney from left of, not just Romney, but President Obama.

Newt is not your prototypical Republican. Take your basic, garden-variety unprincipled Republican and fold in a degree of eloquence. He can take every side in a debate and win every one. If you don't like his principles, why, he has others.

'Singring....How's that EU aka United States of Europe thing working out for the volks?'

Rather well, thank you. We had three percent growth in Germany last year and just this week interest rates on German bonds was negative - meaning that people were actually paying us so they could lend us their money.

How are things in the US?

'Just remember, if you really want to be the United States you'll have to finally pay for your own military, because we're just plain tuckered out.'

Oh, don't worry - the last thing on earth I want Europe to become is the US. Especially in terms of the military.

Singring, you do realize that America has a federal system with autonomous states, right? That's not only our system, but it's our original political debate and it continues. Europe is centralized. You don't want to be the U.S.? Fine, and Americans don't want to be centralized, socialist Europe. Many of our states are doing quite well, thanks, but overall things are not good in the U.S. As for our military, until World War Two we didn't even support large standing peace time armies, but Japan and Germany and then the lovely Soviet Union changed all that and Americans have spent trillions and well over 100 thousand lives instead of using those trillions for other aspects of governmental funding. You're welcome.

'As for our military, until World War Two we didn't even support large standing peace time armies, but Japan and Germany and then the lovely Soviet Union changed all that and Americans have spent trillions and well over 100 thousand lives instead of using those trillions for other aspects of governmental funding. You're welcome.'

As a German, I am eternally grateful to the heroic efforts of England and the US in WW2 and I would be the first to say that those men and women were the greatest generation - and I would also be the first to point out to you that those that returned home after their ordeal benefited from a US where income distribution was far more equal and there was a booming and prosperous middle class and taxes on the rich were high, making sure that everyone contributed what they could and should.

I wish it were still so today.

However, if you seriously want to blame the current situation the US is finding itself in (and the lives and dollars it has wasted on invading Iraq, for example - a war which Germany *opposed*, just in case you missed it) on Communist Russia or Nazi Germany, then frankly I don't think anyone can take you seriously on pretty much anything.

In any case, I will not engage in this cheap and pathetic game of pointless militaristic bravado you seem intent on playing and the fact that you present it to me as your prime excuse for the fiscal woes of the US - well, let's just say I'm not surprised your country is in the state it's in if that is the kind of 'argument' that is convincing to people of any political persuasion.

Singring, your constant reference to Fox News in diminishing opposing viewpoints is intellectual laziness on your part. Equally so when conservatives throw out MSNBC as some imagined trump card against liberals. You don't seem to get that most Americans are leery of governmental promises to equalize life, even as we do accept some safety net programs. In other words, most Americans are glad to let coffee shop European socialists such as yourself create your political nirvanas, as long as you don't get so preachy about attempting to convert a nation of immigrants who never seem to decide to return to the abandoned promised lands. PS Most Americans agree with you about Iraq, and maybe we will now demand that we never act alone again except in direct threat to America. And if we do have to act militarily without that direct threat again, as we did in Libya at the braying of France and England (war for their oil), then I'll insist that my leaders make sure that our *allies* provide more than just overstuffed political speech, but also real live troops and treasure.

PS Tell the Germans thanks for honoring their NATO commitment to the US in Afghanistan, thus far anyway. Seriously. So how do Germans feel about dropping German bombs from German planes in Bill Clinton's illegal war in Yugoslavia? Balkan memories are loooong and ignitable.

"...pointless militaristic bravado..." Not really, Singring, just pointing out that Americans have paid trillions in taxes and lives which Germans and Swedes haven't paid for 60 years because the world is ugly and will always remain so. As the Ghostbusters say...Who ya gonna call?

The US had laissez-faire capitalism in the 1920s, and that didn't prevent the Great Depression. Regulatory capture is a problem, but giving business free reign to endanger workers, consumers and the environment won't solve our problems, and neither will allowing whole sectors of the economy to disappear. If there had been no TARP and no auto bailout, we would be having Great Depression II now.

> The US had laissez-faire capitalism in the 1920s, and that didn't prevent the Great Depression.

And neither did the Federal Reserve Board nor the hands-on policies of the FDR administration. The worst year of the Depression was 1937, a full eight years after the stock market crash that supposedly caused all it.

Milton Friedman won his Nobel Prize in Economics on his work on the role that the Federal Reserve Board played in exacerbating the Depression.

> Regulatory capture is a problem, but giving business free reign to endanger workers, consumers and the environment won't solve our problems, and neither will allowing whole sectors of the economy to disappear.

Since I didn't argue for giving businesses "free reign", however that is defined, what we have here is your basic garden-variety straw man.

> If there had been no TARP and no auto bailout, we would be having Great Depression II now.

Speculation. If that speculation came from Obama's economists, it should be remembered that their earlier speculations on the unemployment rate failed spectacularly.

> The mistake that assumes that the unfettered market automatically produces the best outcome is the typical mistake of capitalists, and it results from the overemphasis on the theoretical aspect of economics.

Martin, the problem I'm having with this statement is that I don't know of any free-market economists who have ever said this. (We'll make an exception for Ayn Rand and her claque, perhaps.)

I think all they could be accused of believing is that the unfettered market will create more wealth than the fettered market, all other things being equal.

But the term "best outcome" is not an economic question, at least in the view of the free marketeers I have read. That would be perhaps a political goal, or a spiritual goal, but not an economic one.

The point of the free market is that each of us has his or her own idea of what the best outcome is, and we're permitted to work within this framework of various constraints and incentives called an economy, with an end toward accomplishing our own best outcomes.

The fact of the matter is that many will fail according to their own goals. Some will fail because they were too lazy, too stupid, too overcome by events, too sick, too slow, too underfunded, you name it. The successful businessman and the failed businessman might have equal intelligence and equal work ethic and equal insight, but the failed businessman might not have had enough luck. His path might have been the optimum path, for all anyone knows. There's no way to measure.

But the free market economists by and large do not get into cosmic justice. That is left for eschatologists like Jesus, Marx, and liberal economists. It's like the Declaration of Independence said: we are free to pursue happiness. But it doesn't tell us what happiness is. Neither does economics.

"Since I didn't argue for giving businesses "free reign", however that is defined, what we have here is your basic garden-variety straw man."

Glad to know you recognize there is a role for government regulation to protect workers, consumers and the environment.

"Speculation. If that speculation came from Obama's economists, it should be remembered that their earlier speculations on the unemployment rate failed spectacularly."

They underestimated just how bad the downturn was. The stimulus should have been much larger, but its doubtful Congress would have allowed it anyway. And TARP was a Bush program, so that speculation was engaged in by Bush economists as well. And its well founded, because its difficult to see how allowing the entire financial sector of the economy to collapse could have had a good outcome.

"I've asked you before, when do we reach the point of too much debt? Do you want to end up like Greece?"

You are comparing a country about the size of greater Miami to the richest country in the world; we won't end up like Greece. We reached a higher level of debt relative to GDP during WWII than we are now, and we never paid it off; we just kept rolling it over, and as the economy grew that debt shrank in size relative to the economy. An austerity program now would be self-defeating since the decline in economic activity caused by decreased domestic spending by the US government would actually make the debt more difficult to pay off, which is exactly what is happening in Europe as governments choose or are forced to adopt austerity budgets.

> You are comparing a country about the size of greater Miami to the richest country in the world; we won't end up like Greece.

The net worth of the United States, lock stock and barrel, is estimated at somewhere between $50 and $60 trillion dollars. We are in debt about $15 trillion, which is a little more than one year's worth of income.

Can you name a dollar point of indebtedness where you think, if we reach that point, we'll be in trouble?

And secondly, can you name anything the Obama administration and Congress are doing to decelerate the increase in debt?

"Can you name a dollar point of indebtedness where you think, if we reach that point, we'll be in trouble?"

By the end of WWII, Britain's debt approached 250% of its GDP, and ours reached about 125%. Economic growth brought that percentage down over time. I don't know if there is a magic number at which point the debt can't be sustained, but based on historical precedent we are nowhere near it.

"And secondly, can you name anything the Obama administration and Congress are doing to decelerate the increase in debt?"

Yes, the affordable care act will bring significant savings, as will the expiration of the Bush tax cuts. And some expenditures on social programs will come down naturally as employment increases.

I hope you're right, KyCobb, but this time I fear it's different. The weight not just of our obligations but also our unfunded obligations, as entitlements are up and so is the number of people approaching retirement age, it's a different age than post-WWII.

Certainly the bond markets aren't as optimistic as you are.

> Yes, the affordable care act will bring significant savings...

I don't believe that. I believe quite the opposite.

> as will the expiration of the Bush tax cuts.

You believe the Bush tax cuts are costing the economy $1.2 trillion per year?

> And some expenditures on social programs will come down naturally as employment increases.

Liberals called the economic recovery during Bush's first term the "jobless recovery." That's when unemployment reached almost 6%.

I was fine with carrying deficits when it didn't mean adding a trillion plus a year to them.

So, you claim that economic growth will obviate the debt.

That might work if we ever experience economic growth again.

Raising taxes is not generally considered the best path to economic growth.

Furthermore, there were no structural changes following the financial collapse of 2008-2009. Fannie Mae and Freddie Mac are still, amazingly enough, with us, as are the same companies and their managements who helped bring the crisis about.

And so is the horrendous policy of punishing mortgage lenders who fail to make enough sub-prime loans. Whatever one's thoughts about using public money to help the poor, it is at this point a proven fact that mixing business with public welfare policy is a bad idea.

The most important fact about capitalism is not what businesses are allowed to succeed, but which ones are allowed to fail. In a capitalistic system, failed businesses go bankrupt and the sheriff seizes their assets, and the courts turn those assets over to the creditors.

Otherwise, those same individuals stay in power, so to speak, and allowed to continue making those poor decisions. In true capitalism, those poor decisions are stopped one way or the other, even if it takes the sheriff.

If we're sending billions to failed Wall Street firms, that's money that is not being used to start up new companies and hire new people.

How ironic that I, the mossbacked conservative, oppose Wall Street bailouts, and liberals are defending it. But then, Wall Street has never favored capitalism. They favor crony capitalism, i.e., the guaranteed success of certain competitors in the market through the power of government connections.

I remember that happening last year because the Congressional Republicans had threatened to default on the national debt. US bonds have continued to sell like hot cakes. In fact bond traders are willing to accept a negative rate of return on them because US Treasury bonds are the safest investment in the world.

"And don't look now, but so was France's."

Which only made US Treasury bonds more attractive to investors. The US isn't embroiled in the Euro mess European politicians have created. Japan's debt to GDP ratio has reached 220%, which the US is nowhere near, but the yield on its bonds have actually been dropping, even though your theory says their bonds should be worthless because they are beyond bankrupt.

> I remember that happening last year because the Congressional Republicans had threatened to default on the national debt.

That's your interpretation. My interpretation is the bond downgrade happened because there was no confidence that Congress and the White House were going to show any real spending restraint, and they were (as things turned out) right.

Nice post which The problem with the Occupy protesters is not that they are wrong about a small number of capitalists having too much power: they're problem is that they seem to think that the solution to the problem is a more powerful government. And the problem with the critics of the Occupy movement is, first, that they think there is no economic problem; and, second, that they think the only right kind of economy and society is a libertarian capitalist one. Thanks a lot for posting this article.